Curtis just recieved a raise at work increasing his salary by $8,500. he knows that an increase in salary will increase the amount of federal income taxes withheld from his paycheck. which of the following statement best describes the effect his raise will have on state income tax withholdings?
a.

state income tax is unrelated to federal, he will see no change in his state withholding.
b.

since he is having more withheld for federal, he will have less withheld for state so that he pays the same amount in the end.
c.

state income tax is usually a set percentage of federal income tax. with an increase in federal he will see an increase in state withholding.
d.

since he is making more money, the state government will take advantage of his raise and charge him more income tax. his state withholding will increase.

Given Curtis’ situation, the answer is C. State income tax is usually a set percentage of federal income tax. With an increase in federal he will see an increase in state withholding.

Income tax is a percentage that is charged to those who live and work in their respective state. Since it is a percentage of money earned, as one’s income rises, so does their money owed in income tax, with an increase in the federal tax the income withholding tax rises as well. 

The option (c) is correct. The state income is calculated as a percentage of the federal income tax.

Further Explanation:

Relationship between federal income tax and state income tax:

State income tax is an additional tax on the income of an individual other than the federal tax. State tax is dependent on the federal income tax. It is calculated as a percentage on the federal tax. If the rate of federal tax increases, the state income tax will also increase. State income tax differs from state to state. The federal income tax does not very it increases with the increase in the income of an individual.

Both taxes are calculated on a progressive basis. It means the higher tax would be imposed in case of higher income.  

Increase in the salary of Curtis:

The income of Curtis is increased by $8,500. The increase in the salary would result in an increase in the federal income tax. The state income tax is calculated as a percentage of the federal income tax. Therefore, the increase in the federal income tax would lead to an increase in the state income tax.

Thus, the state income tax would also increase in the given case.

Justification for the correct and incorrect options:

a.

State income tax is unrelated to federal, he will see no change in his state withholding: This is an incorrect option. The state income tax and federal income tax are related to each other.

b.

Since he is having more withheld for federal, he will have less withheld for a state so that he pays the same amount in the end: This is an incorrect option. The increase in the federal income tax will increase the payment of the state income tax.

c.

State income tax is usually a set percentage of federal income tax. With an increase in federal, he will see an increase in state withholding: This is the correct option. The state tax and income tax are related to each other.

d.

Since he is making more money, the state government will take advantage of his raise and charge him more income tax. His state withholding will increase: This is an incorrect option. State tax charges tax with a pre-specified set of rules.

Learn more:

1.Learn more about the property tax

2.Learn more about the tax on revenue from property

3.Learn more about the personal tax

Answer details:

Grade: Senior School

Subject: Business Studies

Chapter: Taxation

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